Boston corporations demand changes in law firm billing

Lately, the balance of power has shifted from large law firms to corporate clients, who are using bargaining power to demand lower fees and flexibility in pricing models. As a result, many firms are doing what once seemed unthinkable in the industry: cutting hourly rates, bidding for corporate work against rival firms, capping prices, and staying focused on the client’s bottom line.

This change has led to the firms cutting their own costs in a drive to become more efficient, using fewer attorneys on cases, and moving back-office operations to lower cost states. “They’re more and more attacking the old hourly fee structure,” Joel Carpenter, managing partner at the Boston firm Sullivan & Worcester LLP, told The Boston Globe.

Among the smaller firms, Sullivan & Worcester, which has 175 attorneys, is benefiting from the changing environment by undercutting the prices of large firms. The smaller players are agreeing to hourly fees that are sometimes 25 percent less than what top-tier firms might charge and, at the request of corporate clients, holding down costs by not assigning as many firm personnel to work on cases. This has allowed smaller firms to acquire more corporate business, grow revenue, as well as the number of attorneys at their firms.

In 2006, Nelson Mullins LLP opened a Boston office with just two attorneys, but started with a competitive advantage of administrative, technology, and other back-office operations are located at its headquarters in low cost South Carolina. Now, its Boston office has 60 lawyers, due to aggressive recruiting, a merger four years ago with a small local firm, and winning corporate business by offering quality legal work at lower prices.

According to Peter Haley, managing partner of the Boston office of Nelson Mullins, “We’re trying to become more client centric, not lawyer centric.”

Robert Novick, a co-managing partner at WilmerHale, said his firm has heard the calls for change. WilmerHale has started agreeing to fixed prices for some legal services, but has also taken other steps to cut costs. Four years ago, for example, it opened a “business center” in Dayton, Ohio, where the cost of living is about a third less than in major Northeast cities. The firm now employs nearly 250 back-office workers there.

“No one can allow themselves the luxury of not being more competitive these days,” Novick told The Boston Globe. “The client community is trying to be as fiscally responsible as they can, and we in the legal industry and at WilmerHale have reacted to that.”

Law firms also are facing the same forces that have driven other industries to become leaner and meaner, namely globalization and technology. The recent recession has added additional pressures – they’ve driven profit-conscious corporations to find ways to cut legal bills, which can cost companies tens of millions of dollars per year, and have accelerated the shift among law firms towards more efficient, lower cost business models.

“The business has had to change,” said Joseph Ryan, chief executive at Brown Rudnick LLP. “Because clients are more cost conscious, we’re spending more and more time [pitching to clients] and answering their requests for proposals.”